Robinson Department Store

Bualuang Securities May 27, 2014 6:15 pm

Strategic shift strengthens long-term outlook

Robinson Department Store

Investment thesis

We are now more positive over ROBINS' mid- to long-term earnings profile following a strategic shift. The short-term outlook is also better, thanks to the payouts for Rice Pledging Scheme obligations. We have increased our FY14-16 profit forecasts by 4%, 11% and 10%, respectively, raised our YE14 target price from Bt50 to Bt59 and upgraded our rating from HOLD to BUY.

Strategic change

ROBINS has changed its merchandising policy to focus on categories in which it is outstanding, such as footwear, cosmetics, jeans, luggage and homeware. More space will be allocated to these categories, while space for categories where competition is intense (fashionable clothes), will be reduced. Moreover, the category mix will differ at each store, depending on local customer preferences. All the new outlets to open this year will adopt this concept. Existing locations will gradually transform over the next 3-4 years, starting with best-seller stores—Fashion Island, Rangsit and Jungceylon.

Better long-term growth profile

We believe this is a big change for ROBINS. Not only will this new strategy facilitate higher sales/sq.m and stronger SSSG over next couple of years, but it should also expand GM, as the categories the firm will focus on are typically subject to only modest price discounting. We have raised our SSSG assumption from 5percent for FY15-16 to 6.8percent for FY15 and 6percent for FY16, but conservatively maintain our margin forecasts unchanged for now.

Gain from consumption recovery in the provinces

The short-term outlook has also brightened since the junta announced that it will start paying out over Rice Pledging Scheme obligations this week. The payouts should stimulate the economy in the provinces, where about two-thirds of ROBINS' stores are located. We expect the impact to be apparent in the 3Q14 numbers. As such, we have upped our 2H14 SSSG forecast from 3.8% to 5.5%, pushing up our FY14 SSSG assumption from 1.5% to 2.3%.

Less concern over market entry to Vietnam

The loss at ROBINS' operation in Vietnam may not be as deep as we previously feared. Management said that the performance of the first store in Vietnam has been slightly better than its target. Unlike HMPRO, which is facing huge pre-operating costs in Malaysia, ROBINS can share some costs and information with its parent company, CRC, which earlier rolled out SuperSports stores in Vietnam. More importantly, its department stores are widely known and popular among Vietnamese tourists to Thailand.